2018 (8) TMI 1552 - HC - Income Tax

Addition u/s 68 - reopening of assessment - Assessing Officer was of the opinion that bogus transactions were shown as receipts towards share application money through 10 entities - ITAT deleted the addition - Held that - CIT(A) and the ITAT reconsidered the materials on the record and upon their overall analysis formed the opinion that the appropriate tests, indicated by the Supreme Court in Commissioner of Income Tax vs. Lovely Exports 2008 (1) TMI 575 - SUPREME COURT OF INDIA were satisfied that the materials on record are not mere superficial details like PAN, ROC, etc. but further facts relating to the bank accounts of the share applicants. The share applicants were entering into proper commercial transactions and were not per se forged, bogus or sham investors. Undoubtedly, the Assessing Officer had ground to suspect that the entries were made prior to the investments. But that was precisely what was required of him. The assessee in re-assessment, provided all that it could; share investors income tax returns and balance-sheets could appropriately have been sourced by the Assessing Officer in the reassessment proceedings. In these circumstances, it cannot be said that the Assessing Officer exercised due diligence in respect of all facets of the case. Even a contrary view would amount to re-assessment in the facts and circumstances. - decided against revenue

Summary

Issues:
1. Validity of deletion of sum under Section 68 by ITAT.
2. Genuineness of share application money transactions.
3. Compliance with tests for genuineness as per Supreme Court guidelines.

Issue 1: Validity of deletion of sum under Section 68 by ITAT
The revenue challenged the ITAT's decision upholding the deletion of a sum under Section 68. The Assessing Officer disallowed the claim of the assessee regarding share application money through 10 entities and brought the sum to tax. The CIT(A) accepted the genuineness of the transactions, a finding confirmed by the ITAT. The revenue contended that despite disclosing identity, nature, and creditworthiness of share applicants, genuineness was not established. The revenue relied on precedents to argue that transactions were not genuine.

Issue 2: Genuineness of share application money transactions
The revenue argued that even though identity and nature of transactions were disclosed, genuineness was not established. The Assessing Officer believed the transactions were not genuine based on bank statements analysis. However, the CIT(A) and ITAT found that appropriate tests for genuineness, as per Supreme Court guidelines, were satisfied. The materials on record went beyond superficial details like PAN and ROC, showing proper commercial transactions by share applicants. The Assessing Officer's suspicion that entries were made prior to investments was considered necessary diligence.

Issue 3: Compliance with tests for genuineness as per Supreme Court guidelines
The CIT(A) and ITAT analyzed the materials on record and concluded that the tests for genuineness, as per Supreme Court guidelines, were met. The share applicants' bank account details indicated legitimate commercial transactions, not forged or sham investments. The Assessing Officer's duty was to investigate thoroughly, and the assessee provided necessary information during reassessment. Therefore, the findings of the CIT(A) and ITAT did not warrant interference, and the appeal was dismissed.